One State Is Leading In Investment Crowdfunding: Guess Which One

The following guest post is by David Drake, founder and chairman of LDJ Capital, a New York City private equity firm, and of The Soho Loft, a global financial media company with divisions in Conferences and Publishing.

Add North Carolina to the growing list of states working on intrastate investment crowdfunding legislation, especially as the equity crowdfunding proposal of the Jumpstart Our Business Startup Act (JOBS Act) won’t be brought up by the SEC for a three-month public commenting until the end of August at the earliest. This is according to Arizona Representative David Schweikert’s estimates during his speech at the Angel Capital Association on April 19, 2013.

A team of local entrepreneurs and investors in North Carolina looked closely at crowdfunding legislation that has already been passed in Kansas and Georgia. Working together with State Representative Tom Murry they created the North Carolina JOBS Act by selecting the best features of each exemption, while avoiding the problems associated with the stalled and complex federal JOBS Act.

“The reason we did it is that startup companies and small businesses play a critical role in creating new jobs and growing the economy,” said Representative Murry. North Carolina angel investor Mark Easley added, “Crowdfunding gives smaller enterprises in North Carolina access to the capital they need to initiate new business ventures, to expand operations, and to hire additional staff.”

Details about the North Carolina Jumpstart Our Business Startups Act (NC JOBS Act) can be found on the North Carolina JOBS Act of 2013 Blog. The bill is sponsored by Representatives Tom Murry, Tim D. Moffit, Phil Shepard, and Kelley E. Hastings.

The North Carolina approach to investment crowdfunding has been called brilliant and clever.

The North Carolina JOBS Act has a number of provisions that allow the state’s small businesses to raise money through crowdfunding:

• The issuer must be a North Carolina business.

• The investor must be a North Carolina resident.

• Fundraising Cap: Within a 12-month period issuers may raise up to $1 million without audited financials, or $2 million with audited financials.

•
Investor Cap: Investors may invest no more than $2,000 each, unless they are accredited.

• Intermediaries: Issuers may use a professional crowdfunding platform, but it is not required.

• Solicitation: Issuers and sellers are permitted to promote the offering publicly, after filing notice with the state securities regulatory agency.

• Communicating Risk: Investors are required to certify in writing by the time of sale that they understand the risks of unregistered securities and may lose their entire investment.

• Liability: Officers and directors are protected from liability except in the case of fraud or breach of fiduciary duty.

• The exemption is set to become effective immediately when passed. The state regulators may pass rules as real-world usage merits, but there is no waiting period.

It is good to see states taking the initiative while the federal equity crowdfunding law is delayed in a legal securities quagmire.

For more updates on the global crowdfunding industry, and latest information on alternative investment activities and events, or if you have comments about this article, you can leave your comments here or reach out to me directly at David@LDJCapital.com.